sebi:CO/191/MRD/01/2004

SEBI · SEBI · 2002-10-29 · G.N. Bajpai, Chairman

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Facts / Headnote

Prohibition continued: Indian Finance Guaranty Limited directed not to associate with the securities market and not to buy, sell or otherwise deal in the securities market till further orders.

Provisions invoked

• s. 4(3)

Parties

• Indian Finance Guaranty Limited

Holding

SEBI directed that Indian Finance Guaranty Limited (IFGL) shall not associate with the securities market and shall not buy, sell or otherwise deal in the securities market till further orders, continuing the interim prohibition dated 29.10.2002.

Full text

Page 2 of 6 2.1.2 As per the Trust Deed, the number of trustees of the trust shall not be less than three and more than five. It was observed that the trustees have always been from among the elected members of the exchange. The President and the Treasurer of the exchange are also the Chairman and Treasurer of the Trust respectively. No Public Representative and SEBI nominee Director was made a Trustee. The Executive Director of the Exchange was present in meetings of the Trust as a special invitee without having any say in the decision for grant of loan by the Trust to the members of the Exchange. 2.1.3 The Rules of the Trust initially stipulated that “in case of temporary financial difficulty in making payment of dues to the Clearing House of the Exchange, a maximum of Rs.2,00,000/- shall be paid as loan which shall be recovered in 5 equal instalments along with 24% p.a. simple interest” and that “a member shall not be entitled to avail loan under this facility more than two times in a year.” Thereafter, the Council of Management of the Exchange at its meeting held on November 29, 1997 amended the Rules of the Trust to provide that “in case of temporary financial difficulty in making payment of dues to the Clearing House of the Exchange, a loan upto Rs.5 lacs or if the circumstances so warrant, such other higher amount as may be decided by the Trustees may be sanctioned which shall be ordinarily recovered within a period of two months along with the simple interest of 24% p

Page 3 of 6 Rs.94,13,782 (i.e. approx 98% of the total outstanding loans) was due from members who were either office bearers of the exchange or the trustee of the Trust. Further, out of the total loan outstanding (excluding interest), one Shri Babulal Sharma’s outstanding loan amount (excluding interest) constitutes 92.5% of the total loan outstanding of Rs.95,83,782/-. Further, out of the total outstanding loan, a loan of Rs.90,99,620/- (i.e. 95%) was granted to meet the members’ pay in liabilities. Further, it was also observed that in some cases, it was observed that loans were sanctioned without proper security. 2.1.5 The rules of the Trust clearly state that loans may be granted subject to the fulfilment of several conditions. One of the conditions clearly states that at the time of submitting application for loan, there should not be any amount of loan outstanding which is refundable to the Trust. This condition has not been adhered to in the case of Shri Babulal Sharma, where loan has been sanctioned although the previous loan has not been repaid. In the case of Shri Arun Kumar Girdhar, loan has been sanctioned when interest of the previous loan has not been paid by him. 2.1.6 It was also observed from the bank statement in the name of Shri Babulal Sharma’s account No.1003, maintained with Canara Bank, Exchange Branch, that major portion of the above loans were used for making payments to Indian Finance Guaranty Ltd. (hereinafter referred to as “IFGL”), member of the

Page 4 of 6 exchange in the Annual General Meeting of the members of the exchange held on September 29, 2001. 2.2 In view of the above, since it was apprehended that IFGL was involved in and had derived benefit from the irregularities relating to loans extended by the trust, in the interest of investors and in the interest of the securities market, vide order dated 29.10.2002, IFGL was prohibited from buying, selling or otherwise dealing in the securities market till further orders. 2.3 A post decisional hearing was granted to IFGL on 23.11.2002 in which Shri Ashok K Sardhana, Director appeared on behalf of IFGL. During the hearing the member represented that he was not involved in any of the alleged irregularities regarding siphoning of funds from BHSE. 3.0 I have considered the facts of the matter, the report of the inquiring authority, and the findings in the order dated 29.10.2002, the submissions of the member and other material on record. The following issues arise for consideration: 3.1 Whether it is necessary for SEBI, in the interest of investors and the securities market, to continue the prohibition on the member from dealing in securities and from being associated with the securities market. 3.1.1 I note that the Shri Ashok Sardhana as a Director of IGFL had permitted Shri Anjani Kumar Singh to transact business in NSE settlement Nos. 9920, 9922 and 9938. The said Anjani Kumar Singh alongwith Shri Babulal Sharma had obtained a loan from the Trust to meet their pay-

Source: SecMarx — sebi:CO/191/MRD/01/2004. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.